What is Build to Rent? One of the Fastest Growing Sectors in Property
Build to rent is a fast growing sector within the property industry. Here’s more information about what build to rent is and how it works.
What Exactly is Build-to-Rent?
Build-to-rent homes are homes developed and built specifically for the rental market. Build-to-rent homes are not built to sell. They are not sold to owner occupiers nor are they sold to individual buy-to-let landlords. The entire development is purpose built only to rent out.
Build-to-rent is sometimes known as BTR or B2R for short.
Build-to-rent developments are generally developed by or with the involvement of large property development companies, large landlords, pension funds and institutional investors. Both UK and overseas investors are active in the sector. Build-to-rent is considered to be a new asset class for property investors and corporate investors.
Some major names in BTR include Greystar, Sigma Capital Group, Get Living, Fizzy Living and Grainger. Household names like Legal & General, John Lewis and Lloyds Bank are also active in the sector.
Presently BTR developments tend to be restricted to apartments/flats in large city centres. Frequently these are places with large younger populations and access to good public transport. Some developers are moving into or considering single family build-to-rent houses in the suburbs however.
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Is Build-to-Rent the Same as Buy-to-Let?
No build-to-rent is not the same as buy-to-let. You cannot buy a build to rent home to let out.
Build-to-rent homes are not technically part of the private rented sector or PRS, although they usually compete for the same tenants.
How Big is Build-to-Rent in the UK?
Build-to-rent is much larger and more established in other countries such as the US. Build-to-rent is comparatively only a small proportion of the rental market in the UK currently. However some data suggests that BTR is growing fast and will be a much larger part of the rental market in the future.
According to figures from the British Property Federation (BPF) prepared by Savills as of early 2022 there were 72,668 build-to-rent homes in the UK, a 19% increase over a year. 46,304 BTR homes were under construction, a 14% increase over a year. A sizeable 106,380 BTR homes were in planning, an 11% increase over a year.
There were at most only a few hundred build-to-rent homes a decade ago.
The BPF report says that there are around 34,500 BTR homes in London and a further 38,200 in the regions.
Forecasts by Savills suggest that there will be 30,000 BTR completions annually by 2026, or 13.5% of annual supply.
Savills say that £4 billion was invested into BTR in 2021.
What Makes Build-to-Rent Homes Attractive to Tenants?
Build-to-rent developments are new builds with contemporary design that suits modern living styles and they have ‘all mod cons’. They may also be partly or fully furnished.
Build-to-rent developments often include amenities such as a concierge, gym, residents’ lounge, roof terraces, secure cycle storage and cinema room. They may offer on site social activities to residents. Developers usually aim to create a community, not solely accommodation to rent.
Build-to-rent developments are professionally managed, often by on site management. Repairs and maintenance should be attended to quickly, perhaps by an on site team. They may have on site security.
Build-to-rent properties are usually very tech-focussed. They often use an online platform or app to manage lettings and repairs/maintenance etc.
Developments usually offer super-fast broadband, perhaps included in the rent.
Build-to-rent developments usually charge no additional fees. Residents only pay a deposit (some BTR schemes do not require a deposit) and their monthly rent.
Rent increases are specified at the start of the tenancy, so residents know when the rent will rise and by how much allowing them to budget more easily.
Many properties take pets and have facilities for them, which PRS landlords generally do not.
Build-to-rent developments usually offer renters the opportunity to take longer term tenancies. Tenancies may range from 6 months to three years. This offers renters added security compared to a standard 6 or 12 month AST with a conventional private landlord.
What Are the Problems with Build-to-Rent?
Many build-to-rent developments are large and consist of uniform property types. They may be characterless and impersonal compared to living in an individual property in a local community.
Some BTR properties are aimed at certain specific demographics. For example young 18-35s. They are in many ways lifestyle developments attuned to a certain lifestyle, and may not suit everyone. (Purpose-built student accommodation or PBSA is a kind of build-to-rent, but BTR is not solely for students.)
Build-to-rent homes are typically more expensive to rent than similar properties in the private rental market. Some research has suggested that BTR properties are 15% more expensive to rent than the wider private rental market.
Why Are Investors Keen to Invest in Build-to-Rent?
There are a number of reasons why large investors and developers are increasingly active in the sector.
Build-to-rent is helping to provide in-demand new homes faster than might otherwise be possible.
Build-to-rent allows investors to invest in residential rental property at scale. BTR developments may have anything from 50 to several hundred homes each.
Build-to-rent schemes can allow investors to benefit from economies of scale in operation and so enhance yields.
Build-to-rent schemes are designed to encourage tenants to stay long term, so potentially having fewer voids and an enhanced return.
Developers and investors may be able to partner with public bodies, who may have suitable land for development, to pursue new developments.
Build-to-rent has its own status within the National Planning Policy Framework (NPPF), which may help with the progression of new schemes.
There are some possible disadvantages of build-to-rent for investors, however: BTR schemes have a high initial entry cost. Developers and investors must finance site purchase costs, design and planning costs, infrastructure contributions, constructions costs and the costs of setting up and running a development.
Is Build-to-Rent Affordable Housing?
Build-to-rent is not the same thing as affordable housing. Neither is BTR social housing.
Build-to-rent schemes generally offer homes for market rent and homes for affordable rent. However, as rents in build to rent developments are generally higher than other kinds of rental property the affordable rent is likely to be higher too.
Can I Invest in Build-to-Rent?
If you are a small private investor it is not possible to invest directly into BTR property in the same way as buy-to-let.
Direct investment into build-to-rent is usually restricted to property developers, large landlords, financial institutions and institutional investors only.
How to Invest in Build-to-Rent
It is possible to invest in build-to-rent indirectly. This can be done by investing in the shares of construction companies, developers, financial institutions and institutional investors who are active in the BTR market. Or by investing in some kind of investment product such as a REIT which invests in BTR itself.
Is build-to-rent a good investment? It isn’t possible to give advice on whether BTR is a good investment or not. Investment in build-to-rent should be approached in the same way as any other financial investment. Investors should take professional financial advice before investing in build-to-rent.